"Earnings Potpourri" Ahead, as Report Season Shifts Into Full Gear

Let’s call the coming week “the potpourri of earnings,” because investors are going to be slammed with quarterly reports from some big guns starting on Monday and not letting up after that.

Though it’s too early to say for sure how the earnings season will ultimately turn out, the big banks did get things off on a very good note with their reports last week. Now it’s time to see how other sectors weathered the turbulence of the first quarter, and find out if the strong momentum can continue. The week starts light on earnings but ends heavy. On Friday alone, earnings are scheduled from Caterpillar, Inc. CAT, McDonald’s Corporation MCD, General Electric Company GE and Honeywell International Inc. HON.

Monday gets the week going with the final big bank, Morgan Stanley (MS), before the open. After the close come Netflix, Inc. NFLX and International Business Machines Corporation IBM. Last week’s bank earnings were a mixed affair, but the financial sector made big gains anyway. Yes, earnings and revenue fell significantly for the banks that reported, but that was expected. Investors came away happy that even though expectations weren’t great, at least the banks beat them (for the most part). Morgan Stanley, the last to report, has a large wealth management component, so watch results from that business for a sense of consumer sentiment.

After Morgan Stanley reports, focus starts to shift away from banks, with retail, airlines, and some technology names coming into play. Netflix is the first major technology name scheduled to report, and this comes after the technology sector saw some big downward revisions to earnings estimates. The sector was pressured during Q1 from a weakening global economy, consumer reluctance to spend savings from cheap gasoline, and a strong dollar, among other factors. But there may be some optimism now, with Netflix shares up smartly from their mid-winter lows. Alphabet Inc. GOOG is another big technology name scheduled to report during the week, and shares have been climbing.

There’s also optimism around some other names, including McDonald’s, which has been among the strongest-performing big stocks so far this year, up nearly 8% through midday Friday. Shares of some of the coming week’s other major reporting companies, including IBM, Microsoft Corporation MSFT, Philip Morris International Inc PM, Visa Inc. V, and Southwest Airlines Company LUV, have all done pretty well recently.

Though earnings should highlight the week, there’s also some data on tap. Housing starts are scheduled for Tuesday morning, and if you recall, there was a big rebound in February, with a rise of 5.2%. That came after drops in the prior two months. Housing typically is among the most helpful indicators of consumer sentiment, so keep an eye on this report and on existing home sales, which come out Wednesday.

Crude oil also is likely to be a prime factor in the coming week’s trade. A lot depends on what producers decide to do at their meeting over the weekend, which wasn’t known when this article went to press.

Oil Producers Meeting Could Mean Volatility: Keep an eye on oil futures, because Sunday’s meeting of major producers could cause some volatility as Wall Street prepares for Monday’s open. Lately, equities have been highly correlated with oil prices, so any sharp moves in oil one way or another could have an impact on where the stock market goes early in the coming week. Oil prices hit new highs for 2016 last week as crude futures rose above their 200-day moving average for the first time since the middle of last year.

Cautious Consumers: Investors got yet another look at consumer sentiment on Friday, and once again, the signal was caution. The preliminary University of Michigan Index of Consumer Sentiment for April came in at 89.7, down from 91.0 in March and 95.9 last April. This was the fourth consecutive monthly decline. However, Richard Curtin, the Survey of Consumers Chief Economist, said falling sentiment since December doesn’t indicate an impending recession, and put a positive spin on the coming months. “Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation,” Curtin said in a press release. “These apprehensions should ease as the economy rebounds from its dismal start in the first quarter of 2016.” Still, U.S. 10-year Treasury note yields fell 2% to 1.76% midday Friday after the report’s release, and the weak sentiment readings likely played a role.

Citigroup Plans Adjustments for “Challenging Environment”: In a presentation accompanying its earnings on Friday, Citigroup, Inc. C said it made “continued progress in a challenging environment.” Certainly things have been challenging for all the banks in early 2016, but the question now is how they’ll respond as 2016 advances. Citigroup says it plans to optimize its core franchise going forward, with its Global Consumer Bank focused on “priority markets” in the U.S., Mexico and Asia. The emphasis is on repositioning itself so the bank can appropriately size and structure for the environment, Citigroup said, adding that it seeks to be a “simpler, smaller, safer, and stronger institution with significant capital and liquidity.” Investors appeared to like that approach, as shares of Citigroup were up almost 1% as of midday Friday.